Illinois Budget Pact Diverts Pension Dollars

May 27, 2005 ( - Illinois officials have worked out a two-year plan to take hundreds of millions of dollars in earmarked pension funding and use it to help plug the state's gaping budget hole.

The plan could begin working its way through the state’s General Assembly as early as Friday, according to a Chicago Tribune report.

The concept agreed upon by  Governor Rod Blagojevich, House Speaker Michael Madigan, and Senate President Emil Jones marks the third consecutive year that the state’s pension systems have been used to balance the budget, according to the Tribune. The systems are among the most underfunded in the nation.

For the budget year that begins July 1, the governor’s office had pegged the pension payment at about $2.1 billion. The new agreement would give the pensions $1.5 billion instead. For the budget year that begins in July 2006, the pension target had been about $2.5 billion but would be reduced to $1.8 billion.

The news report said that another piece of the proposal would lengthen the repayment cycle for a massive early retirement plan that came in the last year of the George Ryan administration. By spreading payments from 10 to 40 years, Democrats said it would save almost $200 million a year.

The pension reforms include a proposal that would cap end-of-career pay hikes given to teachers and administrators by many school districts at 6%; the governor had proposed a cap of 3%. Teachers also would eventually lose the ability to cash in sick days for big lump sum payouts.

Illinois Democratic legislative leaders told their members the proposal would be the linchpin for a sweeping budget agreement that would include cash aimed at avoiding fare hikes and service reductions at the Chicago Transit Authority and providing $300 million in new funding for schools, the Tribune reported.

“We’re moving forward. Things are going good,” Blagojevich told the Tribune, asserting that the $300 million in new money for education was among “the biggest increases in the last 30 years.”

While Democrats were working on the final details of the agreement, Republicans, who are a minority in Springfield, angrily left the governor’s second-floor State house office and called the plan a costly long-term deferral for short-term political gain.

With Blagojevich sticking to his insistence not to raise taxes, some Democrats said that the decision to divert pension payments represented the ruling party’s best hopes of adjourning the spring legislative session before Tuesday’s deadline, according to the report.

The Illinois pact comes as many of their brethren in state houses across the country continue grappling with public pension shortfalls leading many states to consider far-reaching pension reform programs.